NEW YORK, April 24 /PRNewswire-FirstCall/ - CIBC (CM: TSX; NYSE) -
Increasingly tight oil supplies will continue to push the price of oil
higher with the cost of crude hitting US$150 a barrel by 2010 and soaring
to US$225 a barrel by 2012, forecasts a new energy report from CIBC World
This will result in skyrocketing consumer gas prices in the U.S. with
the national average price easily topping $4.00 this summer, reaching $5.50
in the summer of 2010 and hitting close to $7.00 by 2012.
The report finds that current oil production estimates produced by the
International Energy Agency (IEA) overstate supply by about nine per cent
since it counts natural gas liquids in its numbers. The report notes that
natural gas liquids, while valuable hydrocarbons, are not a viable
substitute for oil and cannot be economically used as a feedstock for
gasoline, diesel or jet fuel.
"While natural gas liquids only account for 10 per cent of total
supply, they account for virtually all of the increase in petroleum liquids
production since 2005," says Jeff Rubin, Chief Strategist and Chief
Economist at CIBC World Markets. "Stripping out natural gas liquids, oil
production has not grown for over two years, which certainly goes a long
way to explaining why oil prices have doubled over that period.
"In light of these developments we have re-examined our projected
supply increases. The distinction turns out to be critical. Roughly 50 per
cent of the increase in expected production is likely to come from natural
gas liquids, leaving only small marginal gains in petroleum supply over the
next two years."
The ratio of natural gas liquids to total "oil" production has been
rising steadily in recent years and is likely to continue to rise for the
foreseeable future. Whereas these hydrocarbons represented only about four
per cent of total oil production back in the 1970s, CIBC World Markets
expects them to account for over 10 per cent of total production by 2012.
This increasing ratio is coincident with accelerating depletion rates
in many of the world's largest and most mature oil fields. While natural
gas can occur on its own, much of it is "associated" gas-found together
with oil. As an oil field matures, the resulting loss of reservoir pressure
releases dissolved natural gas. The released gas forms an expanding cap
over many mature oil fields, resulting in a rising ratio of natural gas to
oil and hence a rising ratio of natural gas liquids to oil production.
Given this trend, Mr. Rubin finds that the global oil market is much
tighter than the IEA forecasts. He believes oil production will hardly grow
at all with average daily production between now and 2012 rising by barely
a million barrels per day.
"Whether we have already seen the peak in world oil production remains
to be seen, but it is increasingly clear that the outlook for oil supply
signals a period of unprecedented scarcity," adds Mr. Rubin. "Despite the
recent record jump in oil prices, oil prices will continue to rise steadily
over the next five years, almost doubling from current levels."
The report also notes that while production increases are at a virtual
standstill, global demand continues to grow. While higher prices and a weak
economy have seen demand drop in the U.S. - as it has in other OECD nations
- this has been more than offset by demand growth outside the OECD.
"Car purchases in Russia, for example, are exploding as U.S. sales
stagnate," says Mr. Rubin. "While in India the advent of the TATA, a car
that will sell for as little as US$2,500, will allow millions of households
in the developing world to own automobiles when they otherwise could not.
Millions of new households will suddenly have straws to start sucking at
the world's rapidly shrinking oil reserves."
Car sales in Russia grew by nearly 60 per cent in 2007, 30 per cent in
Brazil and 20 per cent in China. During the same period, car sales declined
in the U.S. and were flat in Europe. Transport fuels now account for half
of the world's oil usage, and have driven over 90 per cent of demand growth
in recent years.
Mr. Rubin adds that this new and growing market for oil will see world
crude prices continue to rise and kill demand in the more price-sensitive
OECD markets. This has been the case since 2005 where a virtual doubling in
price has led to declining consumption, a phenomenon not seen since the
early 1980s. He predicts that by 2012, consumption in the rest of the world
will exceed OECD consumption, a virtually unthinkable prospect little over
a decade ago, when consumption outside of the OECD measured little more
than half of the OECD's annual oil intake.
"In order to accommodate more drivers on the road in Russia, China and
India, there must be fewer drivers in the U.S. and the rest of the OECD.
And so there will be. U.S. oil consumption is likely to fall by over two
million barrels a day over the next five years as retail gasoline prices
rise from their current US$3.60 a gallon mark to almost US$7 a gallon.
The complete CIBC World Markets report is available at:
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SOURCE CIBC World Markets